4i Newsletter Masthead 412


fouri 412 Discount

When you reduce your price and still offer the same product or service, it’s not negotiating, it’s discounting.

Now the main reasons why discounts are given is for volume, (sometimes this can make sense), to generate new business, (normally a discounted offer for a trial period), or the asking price is not appropriate in the first place and the expectancy is that an offer will be made, (and what does that say about the company, as in essence it overcharges the unwary?)

But the fact is, many people who discount don’t appreciate just how much it can cost.

First of all, let’s address the financials, the cost of discounting. Whatever the amount taken off the top line price, the same amount is also removed from the bottom line profit too. I find it staggering how often businesses discount 1/3, 50%, even their entire margin without realising it.

But perhaps even more concerning are the other costs of discounting – there are a number, but three in particular stand out.

  1. Damage to existing relationships. No one likes to find out they’re paying more than someone else – particularly if they’ve been loyal customers.
  2. Sales dependency. Has anyone ever bought a sofa from DFS that’s not been on sale? Companies, and sales teams in particular, can become addicted to discounting very quickly – sometimes to the point where they believe it to be essential to achieve sales.
  3. Reputation and positioning. Rarely do upmarket consumer brands discount, other than perhaps a sale once a year. In the service sector, the best firms tend to have a fixed price and only discount for considerable volume. Regular discounters are therefore seen as cheap, middle to bottom market providers.

To my mind, discounting should only ever be used in exceptional circumstances and for very short periods of time. Most important of all, is to be able to explain why there’s a discount, (for example, “For the first 20 customers we’re reducing our price by X% in return for feedback on the new features we’ve built into our service…”).

If you’re discounting more than once a year then I suggest you’re likely to have an issue with your product, service or people – perhaps all three.

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